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Understandable
information and explanations of reverse home mortgages,
how they work, when they make sense and the costs involved. You'll find
information, support, resources and many related pages.

Reverse Home Mortgage Info

One of the newest and more innovative
financial tools for the Senior Citizen, today, is the reverse home mortgage.
Already very popular, as the info on the reverse home mortgage becomes
widespread, and as "Baby-Boomers" reach retirement age in large numbers, this
may become the most popular home mortgage vehicle. The reverse home
mortgage solves a major financial problem for Seniors, but has a significant
cost. We'll discuss what a reverse mortgage is, when it makes sense, what
the costs are, and how it affects your taxes.

What Is A Reverse Home
Mortgage?

A reverse home mortgage is a loan
instrument that allows Senior Citizens (age 62 or older) to borrow money against
their home's equity. You can get this money in a lump sum, a line of
credit or monthly installments. How much money you can borrow depends on
your age and the value of the equity in your home. The HUD site
Reverse Home
Mortgage Info has a lot of
information and a mortgage calculator
you can use to figure out how much money
you can borrow. The regulators
seem to have taken much of the risk out
of the system, for instance, you never
have to pay the loan off until you're
done with the house, so, you can't lose
the house for missing a payment. The amount you can borrow with FHA approval is also set
so low that you're not at risk of running out of equity before you no longer
need the home. I know, this sounds like the other sites...all upside.
I'll get to the downside when we discuss the costs. Even with high costs,
the reverse home mortgage can solve a financial problem common to many seniors.
To help you get more info, here are the
latest, top-selling
books on the reverse mortgage.

When Does A Reverse Home Mortgage
Make Sense?

Because of the costs involved, a reverse
mortgage doesn't make sense when you
have enough income and liquid assets to
satisfy your needs and most of your
wants. Also, the closing costs
suggest it doesn't make sense if you're
within only a few years of vacating your
home. A reverse home mortgage
makes sense when you don't have enough
income but you have lots of equity in
your home. It also makes
sense if you don't care about the costs and want to have fun while you can with
the money you have earned (in my opinion, this is the best reason). You
don't really have to worry about the costs, because they aren't due until you're
done with the home...usually, that's when you're done with everything else, too.
Some will want to make large gifts or donations with part of the equity from
their home and want to see the money used. They could get a lump sum or
line of credit reverse mortgage for this purpose. If you're not concerned
about the cost, these are the kinds of situations in which a reverse mortgage
makes sense.

The Costs Of A Reverse Mortgage:

In my opinion, this is the only drawback
to a reverse mortgage...it is very
expensive money. First, there are
closing costs that are higher than
conventional mortgages. Second,
many lenders charge monthly "service
charges"...I don't know why.
Third, the interest rates are quite a
bit higher (currently 10%-vs-5.5%
conventional mortgage, 2005).
Last, but not least, because you make no
payments, the interest is compounded
monthly. This means you pay
interest on the principle borrowed and
on the accumulated interest. When I say "you pay" I
really mean your house pays, because everything will come out of the equity when
you're done with the house. The mortgage is literally paid by the growth in
equity as your home's value increases. At the end of a 20 year period,
a $ 500,000 home can be expected to be worth $ 2 million based on average
appreciation of about 8.5% per year. As you'll see from the debt
information below, there is no time over 20 years that the loan exceeds the
equity value. In fact, if you remain in the home for 20 years, you could
pay off your loan and have around $ 1 million to spare. Still, these costs of money are very
high. If you can get the money you need any other way, it would probably
cost less.

If you borrow $ 1,000 per month on $
500,000 in home equity:
In 7.5 years, you will have borrowed $ 90,000 and owe about $ 45,000 interest,
for a total owing of about 135,000.
In 15 years, you will have borrowed $ 180,000 and owe $ 180,000 in interest, for
a total of $ 360,000.
In 22.5 years, you will have borrowed $ 270,000 and owe $ 765,000 in
interest, for a total of $ 1,035,000.

Taxes And The Reverse Mortgage:

Since a reverse mortgage is not
income, you pay no taxes on the money and the income does not affect your Social
Security. Unfortunately, the only tax deduction from all that interest
comes after you sell your house, in one lump sum. Still, if the costs
aren't a problem, don't sweat the taxes.

Finally, it isn't a very pleasant
task to plan your money so your life will run out, first. You should know,
no matter what happens and how well we plan, there is someone watching over us
who loves us and wants us to have all the best. That is God. If you
want His help to plan and get through this phase of your life, click on
God Help Me.

Way2Hope News!

Always see a licensed medical practitioner before making changes in your health an fitness practices. Advice given at this website, or in conjunction with www.way2hope.org or e-Home Fellowship activities is not to replace the advice given by a licensed professional nor be taken as a counseling or clinical relationship but only as suggestion. We're just sharing things we've discovered, as regular untrained people. As a user of this website you bear full responsibility for your decisions and actions. External websites linked from this site are for information, only. We do not endorse any product, service or treatment. As a user of this website you bear full responsibility for your decisions regarding these products, services and treatments.

Bio: Glen
Williams is Director of E-Home Fellowship, Co. and Webmaster for
http://www.way2hope.org. He founded
EHF in 2001, after more than ten years of full-time service helping people with
life problems. Now, every month, people in over 160 countries come to EHF
websites for help with their problems.